Home > General Topics > Trading > Bid-Ask question

Bid-Ask question

  1. Greetings. Newb here and learning as I go.

    I have a question about who/how bid/ask prices are set prior to the market opening.

    I had a small position in UEPS (nasdaq). It closed yesterday around 16.50 and I had a trailing stop on it for $15. This morning, I was stopped out right as the market opened. Apparently the Nasdaq uses the bid price to activate triggers for stop orders, and this morning the first bid price of the day was $14.60 (ish).

    So I'd appreciate direction to a website or someone's explanation for how bid/ask prices are set pre-opening. Obviously this stock was going to gap down in price today, but it has not traded down at that initial bid price... it's currently trading around $16 with the bid/ask reflecting the current price

    appreciate any help!
     
  2. Hiya. Just bumping this because I know someone out there can explain this to me :) Have been reading your posts and clearly (most of) you are really experienced.

    Just trying to understand how the pre-market bid/ask can be close to $2.00 (12%) below the stocks closing price the day before... and then not have the stock trade anywhere near that value for the whole day.

    Thanks again if anyone can respond.

    H
     
  3. Make your broker provide you with proof of that price from the exchange. The lowest price on 5/1 was 15.67 and that was at the end of the day.
     
  4. Looks like your broker stopped you out and pocketed the difference.

    What broker are you using? I've heard of similar accusations at Interactive Brokers and they are by far the most popular retail broker.

    My advice is to use mental stops and have the discipline to use them if your stock hits that price. Otherwise, brokers can screw you on your stops.
     
  5. Yeah, who is your broker?

    For UEPS, I'm seein the same low of 15.67 on Friday. It opened at 16.50. However, Trailing stops and hidden stops can get triggered at the Market price on the open. For instance, lets say you bought stock "ABC" at the close on Thursday for $10. and also put in an conditional sell order with a hidden stop loss of 9.75 AND with a profit target of 10.50.
    If market opens Friday at $9.60 your stop loss is triggered and you have just sold it at the MARKET price of 9.60, despite your stop loss being 9.75. You get hit with a larger loss than intended, but maybe it saves you if the price kept going down all the way to 9$ the rest of the day.
    HOWEVER, this can also work in your favor... Lets say ABC opens at 10.75 on Friday morning, your sell order is triggered here again at the market and you get the better price of 10.75 instead of your 10.50 target. So it works both ways at least.

    This example doesnt seem to fit with what you are saying however, as 14.60 never occurred on friday. Also, Trailing Stops are usually like 10cents 20cents, 50cents, or whatever, Not hard dollar targets like $15 (to me this would be a hidden stop, and would not trail you).

    Another thing, UEPS has VERY LOW VOLUME (about 400k shares per day, which could show greater volatility in price action at the open, this can be dangerous with stops. I also notice, they report earnings on Monday, you'll want to be careful playing stocks like that.

    As someone who's new, I'm just impressed you're even using stops, which is great risk management and will certainly save you a great deal of pain from bigger losses.
    Hope this helps, goodluck.
    Builder
     
  6. Thanks guys!

    So first, I was using a 12% trailing stop, it was calculated that morning to have a $15.05 trigger point. I really feel I need to have a computerized stop placed because my day-to-day life might not let me get to a computer to place a mental stop when needed.

    I'm using Qtrade in Canada. When I contacted them I was told that the Nasdaq uses the bid price to activate triggers and the first bid of the day was $14.63 (despite the fact the stock never traded at that level).

    It left me with a feeling that someone (or some "thing") has the ability to muck around with prices and I feel like that may have initiated a sell off and a price drop that day... maybe just paranoid??

    nevertheless, the first bid of the day may have been 14.63 (which I can't prove), but the stock opened at 16.50.... so that was the price my stop order sold at.

    All I really lost was a few pennies and my commission.....

    so is my broker feeding me a line of crap?? or is it possible there was a 1-second insta-tick bid for 14.63 that activated my stop but never shows anywhere in the actual high/low price because the stock never actually traded at that level??

    And thanks for the hints on being careful with this stock. I really want to be in on it when the conference call goes live (my data says May 7th), and was planning to have the stop to cover my ass in a worst-case-scenario situation. ....

    Anyway, I'm currently just getting chipped away with comission fees and learning a lot as i go :)

    Thanks again!
     
  7. also, i just upgraded my account to check the level 2 data... but there's no historic data available.

    anyone know a way to see level 2 data from previous days?

    thanks again
     
  8. Looks like it closed at $15.77 so the stop actually worked in your favor. Hopefully you can buy it back on Monday for cheaper than $16.50...
     
  9. i guess that's depends on your broker trigger method. uisng first bid is suicidal. biggest bs i ever heard about nasdaq activates triggers..what?
    what nasdaq have to do with this? exchange just post quotes of participants. they not initiate trades.
    anyway-i don't know what kind of broker you are using, but to trigger the stop i would use something like a last price after 9:30 ET. not bid/ask price..
     
  10. Yeah, and it was proven to be a false accusation.
     
  11. Bid/ask prices aren't "set" prior to the market opening. They represent the best bid and the best asked and can be quite wide, particularly in illiquid stocks. Since most people pull their bids at the close, the spread in the morning can be very wide. All you have to do to see this is log on at that time. Your fill has nothing to do with the broker that you use. Your sell stop loss price was lower than the AM bid so it was hit.
     
  12. many responses with valid points, in additions, you can put "trigger only in regular trading hour flag" with your stop if your broker has this option.


    market makers/specialists often create artificial bid/ask in premarket to hunt stops with illiquid stocks. It just like taking candy from a baby/ pick up nickle from street to them.
     
  13. Thanks again everyone!

    I figure that's what happened... market maker placed a bid pre-open that was ridiculously low and triggered stops, even though nothing ever traded at that price. Like taking candy from a baby (me) :)

    My online broker doesn't have many options for changing default triggers, etc. so I am going to shop around a bit more I guess.

    H
     
  14. you have not..as i said before-MM,exchange or whatever placing the bid cannot trigger anything. he did not steal the candy from you..your broker did..i would personally check,where the trade was executed..pretty sure that your broker was on other side and transaction never reach the exchange.
    i would file a complain about it and change the broker asap.
     
  15. ^^^ this